Understanding your refinance results
The breakeven month is the decision-relevant number: it should be compared with how long you realistically expect to keep the loan.
| Breakeven point | Interpretation (Federal Reserve consumer guidance) |
|---|---|
| Under 24 months | Costs recovered quickly; savings accrue for most holding periods |
| 24 – 48 months | Worthwhile only if the loan is kept several years past breakeven |
| Over 48 months | Savings depend on a long holding period; sensitive to moving or refinancing again |
| No breakeven shown | The new rate does not reduce the payment; a rate-driven refinance does not pay for itself |
- The model assumes both loans are fixed-rate over the same remaining term with no prepayments. Extending the term in a refinance lowers the payment further but can raise total interest paid.
- Closing costs vary by lender and jurisdiction; 'no-closing-cost' refinances typically recover costs through a higher rate or a larger balance rather than eliminating them.
- Points, escrow changes, prepayment penalties on the old loan and tax effects are excluded; a licensed adviser or the lenders' official Loan Estimates should inform an actual decision.
What is refinancing?
Refinancing replaces an existing loan with a new one, usually to obtain a lower interest rate, a different term, or a switch between adjustable and fixed rates. The Federal Reserve Board's consumer guide to mortgage refinancing describes the core trade-off: a lower rate reduces the monthly payment and lifetime interest, but the transaction itself costs money — typically 2–5% of the loan amount in closing costs such as origination fees, appraisal and title charges.
The breakeven point is the standard test for whether a refinance can pay for itself: closing costs divided by the monthly saving gives the number of months before accumulated savings cover the upfront cost. A borrower who sells or refinances again before the breakeven month pays more in costs than the new rate saves; one who keeps the loan well past breakeven comes out ahead under the model's assumptions.
This calculator holds the remaining term constant, isolating the pure effect of the rate change. In practice many refinances reset the clock to a new 30-year term, which lowers the payment further but can increase total interest paid because interest accrues over more years. Comparing like-for-like terms, as this tool does, is the cleaner way to judge the rate itself.
How to use this refinance calculator
- Enter the current outstanding balance on the loan — the payoff amount, not the original loan size.
- Enter your current interest rate and the new rate you have been quoted.
- Enter the remaining term in years; the calculator compares both rates over this same period.
- Enter the estimated closing costs for the refinance (commonly 2–5% of the balance).
- Read the new and current payments, the monthly saving, the lifetime saving net of costs, and the breakeven month. If the new rate is not lower, no breakeven point is shown.
The refinance breakeven formula
Both payments come from the standard amortization formula applied to the same balance and remaining term at the two rates. The breakeven point divides closing costs by the monthly saving, rounded up to whole months.
Worked example: a $200,000 balance with 25 years remaining costs about $1,350.41 per month at 6.5% and about $1,198.49 at 5.25% — a saving of roughly $151.92 per month. With $4,000 of closing costs, breakeven is 4,000 ÷ 151.92 ≈ 26.3, so the 27th month. Over the full 300 months the model projects about $45,576 of payment savings, or roughly $41,576 net of the $4,000 costs.
Common mistakes
- Comparing a new 30-year loan against the old payment without noticing the term reset, which mixes a rate effect with a term-extension effect.
- Ignoring the breakeven point when a move or another refinance is likely within a few years.
- Entering the original loan amount instead of the current payoff balance.
- Treating 'no-closing-cost' offers as free; the costs are usually built into the rate or the balance.
- Overlooking prepayment penalties on the existing loan, which effectively add to closing costs.
よくある質問
What is the breakeven point on a refinance?
The breakeven point is the number of months needed for the monthly savings from a lower rate to add up to the closing costs of the refinance. It equals closing costs divided by monthly savings, rounded up. For example, $4,000 of costs and $152 of monthly savings give a breakeven of about 27 months; keeping the loan longer than that is what makes the refinance pay off under the model's assumptions.
When is refinancing worth considering?
The Federal Reserve's consumer guide suggests refinancing can make sense when the achievable rate reduction produces a breakeven point comfortably shorter than the time you expect to keep the loan. Common trigger situations include a meaningful market-rate drop, improved credit since the original loan, or a desire to move from an adjustable to a fixed rate. Whether it is worthwhile in a specific case depends on costs, holding period and loan terms, and merits professional advice.
How much does refinancing cost?
Closing costs on a US mortgage refinance typically run about 2–5% of the loan amount, covering origination fees, appraisal, title search and insurance, and recording fees. On a $200,000 balance that is roughly $4,000–$10,000. Lenders must disclose costs on a standardized Loan Estimate, which allows direct comparison between offers.
Does refinancing restart my loan term?
Often, yes — many refinances are written as fresh 30-year loans, which lowers the payment but spreads interest over more years and can raise the total interest paid even at a lower rate. This calculator instead compares both rates over your current remaining term, isolating the effect of the rate itself. Some lenders also offer terms matching your remaining years, or shorter 15- or 20-year terms.
Why does the calculator sometimes show no breakeven month?
The breakeven month only exists when the new payment is lower than the current one. If the new rate is equal to or higher than the current rate over the same term, there are no monthly savings to recover the closing costs, so the breakeven result is omitted and the lifetime figure will be negative or zero.
参考文献
- Federal Reserve Board. A consumer's guide to mortgage refinancing. federalreserve.gov.
- Consumer Financial Protection Bureau (CFPB). Loan Estimate explainer — closing cost disclosures. consumerfinance.gov.
- Consumer Financial Protection Bureau (CFPB). Should I refinance? Key questions and cost considerations. consumerfinance.gov.
- Freddie Mac. Refinance options and primary mortgage market survey rates. freddiemac.com.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance (13th ed.). McGraw-Hill, 2020. Chapter 2: How to Calculate Present Values.